Ensuring Compliance with the EU Taxonomy Regulation

The EU Taxonomy Regulation establishes a classification framework to determine if an economic activity is environmentally sustainable. According to an article by Mayer Brown, companies in the EU must begin navigating the regulation’s practical implications and overlapping guidance sources.

The article states a key aspect of compliance is meeting the “Minimum Safeguards” principle, which involves conforming to human rights standards as outlined by the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (UNGPs).

Implementing these safeguards is complex, particularly for scrutinized industries. Companies must establish human rights due diligence (HRDD) processes, encompassing policies, impact assessments, and remediation procedures. The EU Commission clarifies that adherence to these processes is crucial for Taxonomy alignment, regardless of environmental sustainability.

The Platform on Sustainable Finance’s October 2022 report provides detailed advice on applying Minimum Safeguards, emphasizing HRDD’s central role. It suggests a two-step approach for assessing compliance: evaluating HRDD processes and identifying human rights abuses. Companies must demonstrate effective HRDD across operations, supply chains, and business relationships.

Compliance is further linked to other EU regulations like the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D), which complement the Regulation. Controversy screening, a method of assessing a company’s involvement in controversial conduct, is highlighted as a critical tool for evaluating compliance.

Companies, especially those in high-risk sectors, should conduct comprehensive HRDD analyses, monitor human rights reports, and respond promptly to complaints. Collaboration between sustainability specialists and legal teams is essential to ensure compliance with the growing complexity of sustainability regulations.